Miller Corp

Multiple Choice

Miller Corp. purchased $1,000,000 of bonds at 105 when the market yield was 8%. The bonds pay interest at the rate of 10%. Miller intends to hold these bonds to maturity and will not need to sell the bonds before that date. Which of the following statements is false?

A) Since the bonds were issued at a premium, the cash interest will be based on the 10% rate.
B) Since the bonds were issued at a premium, the book value of the bond investment will decrease toward its maturity value.
C) The company would recognize unrealized gains or losses on the bonds as the premium is amortized.
D) The bond investment must be accounted for using the held-to-maturity classification.